Many employers are receiving Health Insurance Marketplace notices stating:
- an employee has been determined to be eligible for premium tax credits or cost-sharing reductions to help pay for Marketplace coverage and has enrolled in Marketplace coverage;
- the employer is receiving the notice because the employer may have to pay an employer shared responsibility payment (i.e., a penalty) to the Internal Revenue Service (IRS); and
- the employer has the right to appeal the determination.
These notices have created significant confusion and concern for employers, and for good reason. The employer shared responsibility penalties that may be imposed under the Affordable Care Act (ACA) are substantial, and no one wants to be responsible for failing to take action that may preclude an assessment of penalties.
This article provides an overview of this new chapter in the ACA's implementation, the nature of the new Marketplace notices being sent to employers, why an employer may want to appeal a determination, how to file an appeal, the relationship between this process and the IRS process for the assessment of employer shared responsibility penalties, and how to reduce the risk of liability for retaliation claims by employees purchasing Marketplace coverage.
The New Notice
During the past several weeks, the federally facilitated Health Insurance Marketplaces have begun mailing to employers a new notice informing the employer that an individual has submitted an application for coverage through the Health Insurance Marketplace in a particular state, indicated that he or she is an employee of the employer, and reported certain information about the health insurance coverage the employee was, or was not, offered by the employer. For example, the notice might state that the employee reported that he or she:
- didn't have an offer of health insurance coverage from the employer; or
- did have an offer of coverage, but it wasn't affordable or didn't provide minimum value; or
- was in a waiting period and therefore unable to enroll in health insurance coverage.
The notice typically is addressed to the attention of the "Benefits Manager" and is sent to the employer address that the employee provides when applying for Marketplace coverage.
Although the federally facilitated Health Insurance Marketplaces have just begun issuing these notices, certain state-based Marketplaces have been doing so for some time. Those responsible for handling the notices should recognize that the notices from the eight state-based Marketplaces will contain a different heading and may appear somewhat different than those generated by the federally facilitated Marketplaces.
The notice will explain that, with respect to a certain year or period, the employee has been determined to be eligible for advance payments of premium tax credit or cost-sharing reductions (collectively, APTC) to help the employee pay for Marketplace coverage, and that the employee has enrolled in coverage through the Marketplace.
Considering an Appeal
An employer may file an appeal to the Marketplace if the employer believes a mistake has been made about an employee's eligibility for APTC. An employer generally should consider appealing the determination if the employer is an applicable large employer (ALE) subject to the ACA's employer shared responsibility penalties and either:
- believes that the employee was or may have been incorrectly determined to be eligible for APTC because, for example, the employer offered the employee coverage that satisfied the ACA's affordability and minimum-value standards; or
- did not employ the individual on its payroll (because, for example, the individual was an employee of a staffing company or classified as an independent contractor).
For 2016, an employer of 50 or more full-time equivalent employees determined on a controlled- group basis is considered an ALE subject to the ACA's employer shared responsibility penalties (also sometimes referred to as the "play or pay mandate"). See our February 19, 2014 bulletin, IRS Final Rule on ACA Play or Pay Mandate Allows Employers to Finalize Compliance Plans, for additional information, including the transition rule in effect for 2015 for employers with between 50 and 99 full-time equivalent employees.
How to Appeal
An employer may appeal by completing and submitting the Employer Appeal Request Form available at https://www.healthcare.gov/downloads/marketplace-employer-appeal-form.pdf or by sending a letter that includes the information requested on the form. The form allows the employer to designate a secondary contact, such as the employer's attorney, to act on the employer's behalf with respect to the appeal, talk with the Marketplace Appeals Center, view the case file and receive all correspondence concerning the appeal.
The appeal request must be submitted within 90 days of the date of the Marketplace notice being appealed. The appeal request may be sent by mail or facsimile to the address or fax number specified on the Employer Appeal Request Form. The appeal should include a copy of the Marketplace notice being appealed, the completed appeal request form (or letter) and any supporting documentation upon which the employer is relying.
Employers are encouraged to consult with legal counsel or another professional who is familiar with the applicable legal standards and can help ensure that the appeal request contains the relevant facts and supporting documentation needed to support the employer's position.
Relationship to IRS Assessment Process
Each Marketplace is responsible for determining whether an individual is eligible for APTC. If at least one full-time employee receives APTC for a calendar month, an ALE may be subject to an ACA employer shared responsibility penalty under Internal Revenue Code Section 4980H.
Specifically, the employer will be subject to a penalty under Code Section 4980H(a) if the employer fails to offer minimum essential coverage to at least 95 percent (70 percent for 2015) of its full-time employees (and their dependents) for that month. This penalty, for 2016, is equal to $180 per month ($2,160 per year) for each full-time employee, minus the first 30. It is calculated based upon all of the employer's full-time employees, including any that may have been offered coverage.
Even if the employer satisfies the 95 percent standard (70 percent for 2015), it may be subject to a penalty under Code Section 4980H(b) if the particular employee receiving the APTC is a full-time employee and the employee either was not offered coverage or was offered coverage that did not satisfy the ACA's affordability or minimum-value standards. This per-applicable employee penalty for 2016 is equal to $270 per month ($3,240 per year).
A Marketplace determination of an employee's eligibility for APTC, or the outcome of any appeal of that determination, will not determine whether the employer must pay an employer shared responsibility penalty. Only the IRS, and not the Marketplaces, can determine if an employer owes an employer shared responsibility penalty under Code Section 4980H. However, if a Marketplace appeal is decided in the employer's favor, it may cause the Marketplace either (a) not to report to the IRS that the employee received APTC or (b) reduce the period for which the employee is reported as being eligible for APTC. Thus, in this sense, the Marketplace appeal process provides a potential first line of defense against the wrongful assessment of employer shared responsibility penalties.
The IRS is developing a separate process for determining if an employer shared responsibility penalty will be assessed and for the appeal of such assessment. The IRS has not yet announced the details of the certification process it will use. Once established, that process will generate notices from the IRS that employers will need to watch for and respond to appropriately.
The ACA contains a non-retaliation provision. ACA Section 1558 prohibits employers from discriminating or retaliating against an individual because he or she received APTC. This provision recognizes that an employee's receipt of APTC may result in his or her employer becoming subject to penalties under Code Section 4980H which, in turn, might prompt some employers to want to end their association with the employee.
To help reduce the risk of liability for retaliation claims, employers should consider (a) providing training to managers and human resources professionals about the ACA's non-retaliation rule and (b) treating Marketplace APTC determinations as confidential, routing them directly to responsible employee benefits personnel and keeping the notices and related correspondence separate from the employee’s personnel file.